2. May an insurer contract with a third
party to administer claims arising out of a particular modality?

3. Would there be a violation of the
Privacy Rule of the Health Insurance Portability and Accountability Act (HIPAA), Public
Law No. 104-191 (1996) in transmission of personal health information to such a
contractor?

4. May such a contractor require that a
health care provider join its network and thus provide services for other insurers that
have contracted to utilize its network?

5. May a managed care organization or its
administrator refuse to admit a health care provider in its network?

6. May a managed care organization pay a
participating health care provider on the basis of a single Common Procedural Terminology
(CPT) Code, rather than utilize a number of CPT Codes, as is done by the
participating chiropractor?

7. May a managed care organization impose a
withhold on payments to participating health care providers?

8. Would a managed care organization be in
violation of 1997 N.Y. Laws 426 if it reimburses participating health care providers at a
level less than that utilized by the Center for Medicare and Medicaid Services (CMS) of
the United States Department of Health and Human Services?

Conclusions:

1. Contracts between participating health
care providers and Health Maintenance Organizations are under the jurisdiction and subject
to the review of the New York State Department of Health. Contracts between participating
health care providers and other insurers are, for the most part, not under the
jurisdiction of any New York State agency. Contracts between participating health care
providers and self-funded plans that are subject to the Employee Retirement Income
Security Act (ERISA), 29 U.S.C.A. § 1001 et seq. (West 1999), are not under the
jurisdiction of any New York State agency.

2. An insurer, including an HMO, may so
contract.

3. The transmission of personal health
information to such a contractor would not be a violation of either the HIPAA Privacy Rule
or its New York State counterpart, N.Y. Comp. Codes R. & Regs. tit. 11, Part 420
(Regulation 169) (2002).

4. There is nothing in the New York
Insurance Law (McKinney 2000 and 2005 Supplement) or the regulations promulgated
thereunder that would prohibit such a practice.

5. There is no statute in New York that
would require a managed care organization to accept all health care providers.

6. The use of CPT codes by managed
care organizations is within the organizations discretion, provided that they are
used within the restrictions imposed by the holder of the copyright and that the benefits
required under all relevant insurance policies and contracts are provided.

7. Such withholds are permissible.

8. There is no methodology or fee schedule
mandated by statute or regulation for calculation of reimbursement by health insurers or
Health Maintenance Organizations of chiropractors.

Facts:

First, the inquirer is a chiropractor in
New York and has contracted with a number of managed care organizations. In previous
correspondence with the Insurance Departments Consumer Services Bureau concerning
complaints against managed care organizations, the inquirer was informed that the
Insurance Department had no jurisdiction over relations between participating health care
providers and managed care organizations. Accordingly, the inquirer asked who has such
jurisdiction.

Second, the inquirer indicates that a
number of managed care organizations have contracted with third parties to administer
their chiropractic benefits. The inquirer believes that such contracting is discrimination
against chiropractors. In addition, the inquirer questions whether the transmittal of
personal health information of his patients would constitute a violation of the HIPAA
Privacy Rule.

In addition, he believes that because such
third parties may have a financial interest in minimizing benefits, there is an inherent
conflict of interest that redounds to the detriment of insured patients.

Third, the inquirer is a participating
chiropractor with ABC which operates two insurers, (1) Insurer A, an indemnity insurer
licensed in accordance with New York Insurance Law Article 42 (McKinney 2000 and 2005
Supplement) and (2) Insurer B, an HMO with a Certificate of Authority from the
Commissioner of Health pursuant to New York Public Health Law Article 44 (McKinney 2002
and 2005 Supplement). Recently ABC has notified participating chiropractors that it has
contracted with DEF. DEF has two subsidiaries operating in New York, (1) JKL, which
functions for ABCs indemnity insurer, and (2) MNO, which functions for ABC's HMO.

JKL has amended its contract with
chiropractors to require that, as a condition of contracting with JKL, the chiropractor
must also contract with MNO. MNO has informed chiropractors that, as a condition to being
in its network, they will be obligated to function for other insurers that have contracted
with it. The inquirer believes that this constitutes an infringement of his freedom to
contract.

Fourth, while with respect to limiting the
number of chiropractors the inquirer has specified only one third party administrator,
PQR, which administers the chiropractic benefit for New York State employees, the inquirer
indicates that the "problem" has arisen with respect to other insurers and third
party administrators. The inquirer indicates that he has been refused entrance into the
chiropractic network maintained by PQR and other third parties. He further indicates that
he has been informed by PQR that it limits the number of chiropractors in its network so
that each participating chiropractor has a substantial number of potential patients to
make up for the smaller amounts that chiropractors are reimbursed. The inquirer concludes
that this "discrimination" is not practiced against other health care
professionals, especially physicians.

Fifth, the inquirer indicates that many
insurers, either directly or through an administrator, will bundle all chiropractic
services under one CPT code, 98940, although there are other codes that could be
applied to a chiropractors services. In addition, you indicate that one insurer,
STU, denies some services with the notation "Provider not allowed to bill for
service", which the inquirer believes implies that his provision of that service is
beyond his authorized scope of practice. The inquirer further asserts that the use of this
notation hinders his patients when they submit claims to secondary insurers.

Sixth, the inquirer complains that many
insurers, either directly or through third parties, impose "risk withholds",
which require the inquirer to share in the financial risk with the insurer. In addition,
the inquirer complains that one insurer, STU, interferes with his ability to collect an
otherwise applicable co-pay. In support of that contention, the inquirer has furnished an
Explanation of Benefits (EOB) for a patient who has a $25 co-pay. The EOB indicates that
it will allow $27.38 for a procedure where the inquirer charged $40, places $3.56 in a
"Risk Pool", leaving $23.82, which CDPHP allocates to
"Co-Pay/Deductible". The inquirer fears that, since the EOB is available to the
patient, the patient will believe the inquirer is acting improperly in collecting the full
$25 co-pay.

Finally, the inquirer has furnished an EOB
issued by a contractor for the CMS under the Medicare program and an EOB issued by a
private insurer. For each procedure, the reimbursement under Medicare is larger than the
reimbursement provided by the private insurer.

Analysis:

Background

There are three main types of managed care
organizations, indemnity insurers, HMOs, and self-funded employee welfare benefit plans.
Each type of organization may opt to administer its benefits directly or contract all or
part of such administration to a third party.

Indemnity insurers are regulated solely by
the Insurance Department. The regulation of HMOs is bifurcated between the Department of
Health, which regulates quality of care, and the Insurance Department, which regulates
subscriber contracts and much of the HMOs finances. In accordance with ERISA, 29
U.S.C.A. § 1144(b)(1)(B) (West 1999), self-funded employee welfare benefit plans are not
to be deemed insurers under state law and may not be regulated as such.

New York Insurance Law § 4801(c) (McKinney
2000) defines a managed care contract:

a managed care health insurance
contract or managed care product shall mean a contract which requires
that all medical or other health care services covered under the contract, other than
emergency care services, be provided by, or pursuant to a referral from, a designated
health care provider chosen by the insured (i.e. a primary care gatekeeper), and that
services provided pursuant to such a referral be rendered by a health care provider
participating in the insurer's managed care provider network. . . .

Section 1 of 1997 N.Y. Laws 426 sets forth
the Legislative intent:

The legislature recognizes that multiple
health professions are trained and licensed to diagnose and treat the same or similar
conditions through the use of modalities, therapies, services and philosophies that vary
from profession to profession. It is the specific intent of this legislature to assure
that health insurance policies, plans and contracts that provide coverage for the
diagnosis and treatment of conditions, complaints, ailments, disorders or injuries by any
health care profession, that may be diagnosed and treated by a doctor of chiropractic,
must provide access to and equivalent coverage for the diagnosis and treatment of those
conditions, complaints, ailments, disorders or injuries by a duly licensed doctor of
chiropractic, within the lawful scope of chiropractic practice even if different
terminology, philosophy, services, treatments or modalities are used by the various health
professions; and such equivalent coverage shall not be abridged by any regulation
heretofore promulgated or to be promulgated.

Among the substantive changes made by 1997
N.Y. Laws 426 was the enactment of New York Insurance Law §§ 3216(i)(21) (McKinney 2000
and 2005 Supplement), regulating individual policies of commercial health insurers, and
3221(k)(11) (McKinney 2000 and 2004 Supplement), regulating the group policies of
commercial insurers,:

(1) Every contract issued by a health
service corporation . . . which is a managed care product . . . that includes
coverage for physician services in a physician's office, and every managed care
product that provides major medical or similar comprehensive-type coverage, shall
include coverage for chiropractic care, as defined in section six thousand five hundred
fifty-one of the education law, provided by a doctor of chiropractic licensed pursuant to
article one hundred thirty-two of the education law, in connection with the detection or
correction by manual or mechanical means of structural imbalance, distortion or
subluxation in the human body for the purpose of removing nerve interference, and the
effects thereof, where such interference is the result of or related to distortion,
misalignment or subluxation of or in the vertebral column. However, chiropractic care and
services may be subject to reasonable deductible, co-payment and co-insurance amounts,
reasonable fee or benefit limits, and reasonable utilization review, provided that any
such amounts, limits and review: (a) shall not function to direct treatment in a manner
discriminative against chiropractic care, and (b) individually and collectively shall be
no more restrictive than those applicable under the same policy to care or services
provided by other health professionals in the diagnosis, treatment and management of the
same or similar conditions, injuries, complaints, disorders or ailments, even if differing
nomenclature is used to describe the condition, injury, complaint, disorder or ailment. .
. .

. . .

(5) The coverage required by this
subsection shall not be abridged by any regulation promulgated by the superintendent.

New York Insurance Law § 4303(y) (McKinney
2000 and 2005 Supplement), regulating subscriber contracts of not-for-profit heath
insurers and all HMOs, has an identical requirement.

Jurisdiction Over Participating Provider
Contracts

New York Public Health Law § 4403
(McKinney 2002 and 2005 Supplement) establishes the general requirements for issuance of
Certificate of Authority by the Commissioner of Health. More specific requirements have
been established by regulation by the Commissioner of Health. Among the requirements is
N.Y. Comp. Codes R. & Regs. tit. 10, § 98-1.5(b)(6)(i) & (ii) (2001), which
requires that contracts with health care providers be submitted to it for review. There
are specific requirements concerning contracts between HMOs and participating health care
providers.

Accordingly, questions and complaints by
participating health care providers concerning their relationship with an HMO should be
addressed to the Department of Health.

While contracts between other insurers and
participating health care providers are not generally subject to review by the Insurance
Department, there are specific requirements for managed care contracts. New York Insurance
Law § 4803 (McKinney 2000) provides:

(a) An insurer which offers a managed care
product shall, upon request, make available and disclose to health care professionals
written application procedures and minimum qualification requirements which a health care
professional must meet in order to be considered by the insurer for participation in the
in-network benefits portion of the insurer's network for the managed care product. . . .

(b) (1) An insurer shall not terminate a
contract with a health care professional for participation in the in-network benefits
portion of the insurer's network for a managed care product unless the insurer provides to
the health care professional a written explanation of the reasons for the proposed
contract termination and an opportunity for a review or hearing as hereinafter provided.
This section shall not apply in cases involving imminent harm to patient care, a
determination of fraud, or a final disciplinary action by a state licensing board or other
governmental agency that impairs the health care professional's ability to practice. . . .

(c) Either party to a contract for
participation in the in-network benefits portion of an insurers network for a
managed care product may exercise a right of non-renewal at the expiration of the contract
period set forth therein or, for a contract without a specific expiration date, on each
January first occurring after the contract has been in effect for at least one year, upon
sixty days notice to the other party; provided, however, that any non-renewal shall not
constitute a termination for purposes of this section.

. . .

(e) No insurer shall terminate or refuse to
renew a contract for participation in the in-network benefits portion of an insurer's
network for a managed care product solely because the health care professional has (1)
advocated on behalf of an insured; (2) has filed a complaint against the insurer; (3) has
appealed a decision of the insurer; (4) provided information or filed a report pursuant to
section forty-four hundred six-c of the public health law; or (5) requested a hearing or
review pursuant to this section.

. . .

It appears, based upon a review of the one
provider contract the inquirer has furnished, that of DEF, that the contract is in
compliance with New York Insurance Law § 4803(b). If a participating health care provider
believes that a managed care insurer, other than an HMO, either directly or through a
third party, is in violation of New York Insurance Law §4803, a complaint may be made to:

Consumer Service Bureau

New York State Insurance Department

One Commerce Plaza

Albany, NY 12257.

As indicated above, no state agency has
jurisdiction over relations between participating health care providers and self-funded
employee welfare benefit plans.

Third Party Administrators

In the inquirer's letters he has conflated
Third Party Administrators (TPA) and Independent Practice Associations (IPA). A TPA is an
outside entity retained by an insurer or self-funded employee welfare benefit plan to
administer all or part of the insurers or employee welfare benefit plans
benefits. An IPA is an entity that puts together a network of health care providers and
makes that network available to insurers or self-funded employee welfare benefit plans.
While the same entity may perform both activities, the functions are separate.

The Insurance Department does not regulate
TPA, qua TPA, although if a TPA performs a function that requires a license, such
as adjusting, it must be appropriately licensed. As to IPAs, a regulation of the Health
Department, N.Y. Comp. Codes. R. & Regs. tit. 10, § 98-1.5(b)(6)(iv) provides with
respect to IPAs:

(a) the certificate of incorporation of the
IPA contains powers and purposes limited to arranging by contract for the delivery or
provision of health services by individuals, entities and facilities licensed or certified
to practice medicine and other health professions, and, as appropriate, ancillary medical
services and equipment, by which arrangements such health care providers and suppliers
will provide their services in accordance with and for such compensation as may be
established by a contract between the corporation and one or more health maintenance
organizations which have been granted a certificate of authority pursuant to the
provisions of article 44 of the Public Health Law of the State of New York, as amended;

. . .

(c) any general powers and purposes
contained in the certificate, as authorized by section 202 of either the Business
Corporation Law or the Not-for-Profit Corporation Law, are by express provision in the
certificate to be exercised only as powers and purposes incidental to accomplishing the
primary IPA powers and purposes of the corporation; and

(d) the IPA's certificate of incorporation
has been reviewed by the Education and Insurance Departments and the Commissioner of
Health, has been filed with the Secretary of State and, when presented for filing, had
annexed thereto the waiver, approval or consent of the Education and Insurance Departments
and the commissioner;

In addition to HMOs, IPAs may also function
for indemnity insurers which issue a managed care product and for self-funded employee
welfare benefit plans. Whether such functioning is permissible would have to be made by
the Health Department. The assertion of jurisdiction by the Insurance Department over IPAs
is limited.

Contrary to the inquirer's assertions, TPAs
and IPAs function for insurers, including HMOs, with respect to a number of benefits.
While the inquirer is correct that insurers may treat chiropractors differently than other
health care professionals, such distinctions are not a function of the use of TPAs or
IPAs. Therefore, the use of TPAs and/or IPAs is not in violation of 1997 N.Y. Laws 426,
which was enacted for the benefit of insurance policyholders and subscribers, not health
care providers.

Sharing of Financial Risk

The sharing of financial risk by a health
care provider or IPA would fall within the New York Insurance Law § 1101 (McKinney 2000
and 2005 Supplement) definition of doing an insurance business. However, the Insurance
Department has considered the requirement of New York Public Health Law § 4403(1)(c) that
HMOs share financial risk as an implied exemption from the New York Insurance Law § 1102
(McKinney 2000 and 2005 Supplement) requirement that those doing an insurance business be
licensed by the Insurance Department.

Notwithstanding any agreement to the
contrary, the insurer retains full financial risk on a prospective basis for the provision
of health care services pursuant to any applicable policy or contract. At all times, the
insurer must be able to demonstrate to the satisfaction of the superintendent that the
insurer can fulfill its non-transferable obligation to provide coverage for health care
services to subscribers in any event, including the failure, for any reason, of a
financial risk transfer agreement with a provider. In considering whether an insurer has
satisfied its obligation to retain full financial risk, on a prospective basis, the
superintendent shall consider the financial condition of the insurer and the health care
provider . . .

Even if, because of the amounts involved,
an IPA does not have to meet the financial requirements of Regulation 164, N.Y. Comp.
Codes R. & Regs. tit. 11, § 101.10 (2002), it is the position of the Insurance
Department that an insurer, including an HMO, is responsible for the provision of benefits
in accordance with the insurance policy or subscriber contract. While TPAs do not share
financial risk, the same rule, that there may be delegation of authority but not
responsibility, applies and policyholders and subscribers are entitled to all benefits set
forth in their policies and contracts.

Accordingly, insureds are entitled to all
the rights conferred by New York Insurance Law Article 49 (McKinney 2000) and New York
Public Health Law Article 49 with respect to an insurers medical necessity
decisions.

Privacy Issues

Both insurers, including HMOS, and heath
care providers are, in accordance with 45 C.F.R. § 160.103 (2002), considered covered
entities under the HIPAA Privacy Rule. The HIPAA Privacy Rule, 45 C.F.R. § 160.103 also
defines a business associate:

[B]usiness associate means, with respect to
a covered entity, a person who: (i) On behalf of such covered entity . . . other than in
the capacity of a member of the workforce of such covered entity or arrangement, performs,
or assists in the performance of (A) A function or activity involving the use or
disclosure of individually

identifiable health information . . . or
(B) Any other function or activity regulated by this subchapter; or (ii) Provides, other
than in the capacity of a member of the workforce of such covered entity, legal,
actuarial, accounting, consulting, data aggregation . . . management, administrative,
accreditation, or financial services to or for such covered entity, or to or for an
organized health care arrangement in which the covered entity participates, where the
provision of the service involves the disclosure of individually identifiable health
information from such covered entity or arrangement, or from another business associate of
such covered entity or arrangement, to the person.

It is the belief of the Insurance
Department, subject to a determination by the United States Department of Health and Human
Services, that IPAs and TPAs that have been contracted by an insurer, including an HMO, to
provide services with respect to benefit administration are business associates of the
insurer.

The HIPAA Privacy Rule, 45 C.F.R. §
164.504(e)(2) (2002), requires that contracts between covered entities and their business
associates obligate the business associates to comply with the substantive requirements of
the Privacy Rule.

Nothing in this section shall prohibit,
restrict or require an authorization for the disclosure of nonpublic personal health
information by a licensee for the performance of the following insurance functions by or
on behalf of the licensee: claims administration; claims adjustment and management . . .
any activity that permits disclosure without authorization pursuant to the federal Health
Insurance Portability and Accountability Act privacy rules promulgated by the U.S.
Department of Health and Human Services . . . . Additional insurance functions may be
added with the approval of the superintendent to the extent they are necessary for
appropriate performance of insurance functions and are fair and reasonable to the interest
of consumers.

Accordingly, the transmission of protected
health information to a TPA or IPA would not, in and of itself, constitute a violation of
either the HIPAA Privacy Rule or Regulation 169.

Mandatory Network Participation

New York Insurance Law § 4224(c) & (d)
(McKinney 2000 and 2005 Supplement) prohibits "tie-ins" for the sale of health
insurance. There is no provision in the New York Insurance Law or the regulations
promulgated thereunder, or to the Insurance Departments knowledge in the New York
Public Health Law (McKinney 2002 and 2005 Supplement) or the regulations promulgated
thereunder, dealing with such requirements imposed by IPAs.

Whether such a requirement would be in
violation of either Federal, 15 U.S.C.A. §§ 1 (West 1997) and 14 (West 1997), or State,
New York General Business Law § 340 (McKinney 2004), anti-trust statutes is beyond the
expertise of the Insurance Department.

Restrictions on Membership in Networks

Unlike some jurisdictions, New York does
not have an "any willing provider" statute requiring that HMOs and other managed
care organizations accept all qualified health care providers in their networks. It is the
understanding of the Insurance Department that, so long as an HMOs network meets the
standard of New York Public Health Law § 4403(5)(a), "adequate to meet the
comprehensive health needs of its enrollees and to provide an appropriate choice of
providers sufficient to provide the services covered under its enrollee's contracts",
an HMO may refuse to enroll additional health care providers in its network.

In addition, given the limited range of
services that may be provided by a chiropractor, New York Education Law § 6551 (McKinney
2001), as contrasted with the scope of practice of a physician, New York Education Law §
6521 (McKinney 2001), a different standard for determining whether to admit a chiropractor
to a network would not be violative of 1997 N. Y. Laws 426.

CPT Codes

Such codes have been developed by the
American Medical Association:

CPT is a listing of descriptive terms
and identifying codes for reporting medical services and procedures performed by
physicians. The purpose of the terminology is to provide a uniform Language that will
accurately describe medical, surgical, and diagnostic services, and will thereby provide
an effective means for reliable nationwide communication among physicians, patients, and
third parties.

While such codes are used by insurer and
other third party payors for other health care providers, it is the position of the
Insurance Department that, so long as the use of CPT codes is within the limitations
imposed by the AMA and the use of a particular code does not violate either the applicable
insurance policy or contract or the contract between the insurer and the participating
health care provider, whether an insurer utilizes a particular CPT code for payments
to a health care provider is not a matter within the Insurance Departments concerns.

In addition, New York Insurance Law §
4900(h) (McKinney 2000) provides:

For the purposes of this article none of
the following shall be considered utilization review: . . . (3) The review of the
appropriateness of the application of a particular coding to a patient, including the
assignment of diagnosis and procedure . . .

New York Public Health Law § 4900(8)
(McKinney 2002) has an identical provision affecting HMOs. Accordingly, a health care
provider has no appeals rights under either New York Insurance Law Article 49 or New York
Public Health Law Article 49 with respect to a choice by a insurer as to which CPT
code to utilize in making payments to such provider.

As to the notation by STU on Explanations
of Benefits, the appropriate connotation is that the contract between the health care
provider and the HMO does not allow a billing for that procedure, not that the service is
beyond the scope of practice.

The term withhold shall mean a
percentage of payments or set dollar amounts deducted from a health care provider's
contractual payment and that may or may not be returned to the health care provider,
depending on specific predetermined factors, including any necessary approvals by the
insurer's board of directors.

Withholds are a recognized form of sharing
of financial risk between managed care organizations and participating health care
providers. Since they are utilized with a wide range of health care providers, they are
not a violation of 1997 N.Y. Laws 426.

As to the Explanation of Benefits provided
by STU, it is apparent that the figure represents the difference between the allowed
amount and the withhold. While the HMO could have chosen a different nomenclature, there
is no intimation in the Explanation of Benefits and, according to the inquirer in the
contract between STU and health care providers, that the full co-pay is not to be
collected.

Reimbursement Rates for Chiropractors

The Memorandum in Support of the
legislative proposal, Senate Bill 5994 (Sen. Velella), that became 1997 N.Y. Laws 426
provided:

There has been concern expressed about the
cost impact of including a mandate for chiropractic services as a required part of a
health insurance benefit package. This bill addresses this concern by permitting insurers
and HMOs to subject chiropractic coverage to reasonable deductible, co-payment and
co-insurance amounts, benefit limits and utilization review requirements. However, such
limitations must not operate in a manner discriminative against the chiropractic school of
practice.

The Medicare program covers chiropractic
services within the scope of practice of a chiropractor under the same conditions as if a
physician provided the services. 42 U.S.C.A. § 1395x(r)(5) (West 1982 and 2003
Supplement). The regulations under which CMS operates, 42 C.F.R. §§ 410.20(b)(5) (2000)
and 414.2 (2000), also require that chiropractors operating within their authorized scope
of practice are to be reimbursed in the same manner as physicians. The actual methodology,
42 C.F.R. § 414.20 et seq (2000) is based on a complicated relative value
calculation.

By contrast, there is no statute or
regulation in New York that requires that services of a chiropractor be paid for in an
equivalent manner as the services of a physician. Nor is there, outside the context of
automobile no-fault or workers compensation, any statute or regulation prescribing
fee schedules for chiropractors.

Summary

Accordingly, the Insurance Department
cannot conclude, based upon the information the inquirer furnished, that any insurer is in
violation of 1997 N.Y. Laws 426 or any other provision of the New York Insurance Law.

For further information you may contact
Principal Attorney Alan Rachlin at the New York City Office.